How Hard is it to Find Tenants?

Question

Hi everyone, I’m looking to buy my first house hack in the Denver area. I’m hoping to buy a home around 500K with 5 bedrooms and renting every room while sleeping in a trailer. Currently a mortgage would be around 3500/month so if I rented every room around 800 each I’d be pulling in 500/month before reserves and that’s with all rooms rented out.

My questions-

How hard is it to find renters immediately after getting a property?

With a $3500 mortgage just being over 50% of my W2 income (im make about 3100 per paycheck) am I biting off more than I can chew in case of vacancy?

I’ve also looked into 400-450K price range with 4 bedrooms with a cheaper mortgage, but also a lower cash flow, or just breaking even.

Bill B. · Answer

As long as you can afford to lose a little every month you should be fine. You obviously aren’t going to make $500/mo. Your utilities will be more than that. So when you’re full you’ll lose a little. But with 5 room rentals you’ll probably hsve a vacancy every month, every 2 months for sure. So I would count on $3,200 coming in minus $500 in utilities and another $100 or $200 in repairs. Probably another $100-$200 for cleaning unless you plan to do it.

This is assuming things go almost perfectly. If you can find a lender that will borrow you that much, you don’t mind being negative $800 give or take per month, and you don’t have anything for the bank to go after if you fail. Then now’s as good a time as any.

Once you have something to lose. I’d suggest you try to keep your payments and number of roommates both lower to avoid losing everything.

Ps. Make sure your market allows that many unrelated people to live in the same home. Some don’t. And make sure you have enough parking.

Jonathan Greene · Answer

I'm surprised that everyone is saying that this idea is a good one because it's really not. Have you seen any properties yet where this would work? Have you seen any properties at all?

The way you are breaking it down is very spreadsheet-friendly in terms of what would work in a best-case scenario, but landlording for five room hackers is not easy and the rent is not easy to collect in all cases. Your numbers are likely based on if everything goes well and not if everything fails, which is more likely.

Just the idea of buying a property to rent to five people who don't know each other and also live on the grounds in a trailer should seem ludicrous to more people. In theory, it could work, but the could is much more likely than the would with what you've laid out.

Greg Weik · Answer

@Steven Mendiola I applaud your approach and wish you luck.

I've personally managed a number of house hacks, and the challenge is basically, you're dealing with a much more transient and unreliable tenant base than with other types of properties.

When I allowed HH properties at my company, we screened people to the degree we could (credit, background, income, rental history), but you still end up with some percentage of "crazies" who can derail the entire property and force out your other tenants.

Screening is important, but so is your lease.  You need to have a mechanism to remove tenants who are a problem, and I would strongly encourage you to consult an attorney the moment you close to get your lease terms right. You may be surprised to know you can't just kick someone out.  It's exceptionally difficult to remove a tenant, now more than ever.

I understand this is an appealing way for people to get into real estate investing, but my $.02 as a real estate investor and someone with front-row experience with these properties to run away screaming from this approach.  The risks far outweigh the rewards. It's what I call spreadsheet investing.  The spreadsheet will never tell you about real-world problems, and I assure you there are many.

Are there success stories?  Of course.  People love coming to places like this and saying, "Yeah, bro, no problem, I rented all my rooms in a day and was swimming in cash."  I'm not so sure.  Personally, I'm pretty decent at property management and I have to call BS on every such story I see.  The only way to run a HH property is with constant oversight and diligence and even then it can go off the rails.

My unsolicited advice: do a different side hustle, start making real money at it, and buy an actual single-family home as an investment.  Put at least 20% down and rent it with a single lease.  Build equity, get a heloc, and get another house.

Julie Garner · Answer

It's easy to find tenants; it's more difficult to find GOOD tenants.

Screen, screen, screen.  Do a search here and you'll find great screening advice.

Nathan Gesner · Answer

It shouldn't be difficult if you buy in the right area. Demand is high for affordable housing. What's more important is that you learn how to screen properly and then enforce the lease to keep peace in the home. Managing that many personalities in one space can be difficult.

I also recommend you set aside money as if you were paying rent. Use the "extra" income to build a reserve for maintenance, vacancies, and other expenses that don't happen regularly. It would be wise to have at least three months of rent saved up at all times to cover the unexpected.

Eric Gerakos · Answer

The difficulty in finding tenants is determined by the desirability of the location, the property itself, and the amount of rent you're charging relative to other rentals in the area. Buy in better areas and you will have less vacancy.

Samuel Ace · Answer

Your biggest issue with 5 bedrooms is that 50% of your income is going towards the mortgage, I do not believe banks would even lend to you with a DTI above 40-45 (mortgage + other debts). You should make sure that in the worst case scenario (no rooms rented out), that you will be able to afford the mortgage.

Even though it's unlikely all the rooms will be vacant, its equally unlikely that all rooms will be rented out for a long time, room renters tend to move around a lot so you still want to make sure you're prepared for the vacancy, as Koren mentioned above expect leases under 12 months.

Make sure you screen your tenant's good, and that you get along with them as they will be living with you.

Steve K. · Answer

To answer your question the difficulty level of finding tenants will depend mostly on exact location and time of year. W of I-25, as close to the mountains as possible will be easier to find tenants generally speaking (also think of the commute into Denver), and the spring will be the easiest time of year. It can be very hard to find quality tenants from around Halloween through Januaryish IME.

If you are open to 4 bedroom homes, you'll have a LOT more options because there aren't many 5 bedroom houses here. For example I just did a quick MLS search from Colfax north to Longmont, up to $550k. There are 166 listings with 4 beds, only 44 with 5 bed. Location should be your primary concern if you want good tenants and good appreciation. Being open to 4 beds will help you buy in a better location.

Brighton, Firestone, Commerce City, Northglenn, Frederick, Thornton, Arvada etc. are all possible although you will not be in the most desirable areas of these towns in this price point. There is actually one 5/3 in Arvada near olde town right now that could work, and several in Longmont on the East side of town.

None of these areas technically allow for living in a trailer on the property however. HOA's definitely won't go for that (about 75% will have an HOA) and most city ordinances do not classify a trailer/RV as a domicile meaning you can only stay in one even on your own property for a certain number of days. Most properties in this price point will be in neighborhoods with houses close together/ neighbors that will report you. It'll be hard to permanently live in a trailer/RV/van discreetly in any of these neighborhoods. Maybe if you can find something still kind of rural where the neighbors don't care? That part of the plan contradicts being near Denver where you can also find tenants easily though. As an alternative you could look for a walk-out, lock-off basement and add a small kitchen/kitchenette down there to have your own space away from your housemates. Denver just loosened most of their restrictions around ADU's also but they still have to have a foundation.

I house-hacked a 4/4 here in CO when I was first starting out. It's a great strategy to get started. We had 8 people (4 couples) and 4 dogs living together at one point and actually I had a really good time. However when my friends moved out and I started renting to strangers, I found the high turnover rate and overall living situation to be much more challenging. Totally worth it though as buying property here in CO is a great way to build wealth quickly, and it sure beats renting.

Drew Sygit · Answer

@Steven Mendiola admire your gungho attitude, be sure to temper it a bit with reality, but don't lose you energy - it can help you recover from a lot of mistakes!

I house hacked before it was called house hacking:) Screened my roommates like any other applicants. Had them sign leases and got security deposits. Never really had a problem.

Check out Padsplit.com, not sure if they are in Denver, but you can learn something from their website.

Buy a house with a basement and live in that basement! FYI: most cities won't allow a tenant to live in a basement, but they don't care that an owner lives in it.

Steve K. · Answer

Funny because I was coming down from checking on a listing in the mountains yesterday and noticed a big RV that has been parked at one of the neighbors lots for a few months with people obviously camping there, and I thought of this thread. It's definitely more common up there (Gilpin County where the regs say you can camp for 30 days with a camping permit and neighbors are typically less likely to complain/ code enforcement is less likely to notice and enforce). It's gotten harder both down on the flats and in the mts over the years. We actually had folks crashing in the driveway in vans and pickups with camper shells all the time when I was house hacking in Boulder and just got lucky with the neighbors. Ignorance was bliss back then and I think people were less likely to complain.

I never felt like my personal safety was an issue when house hacking, but the high level of turnover did get old after a while. Outside of my friend group I found that most people looking to rent a room in a house with strangers were medium-term type renters so there is a lot of what we call "churn" or turnover and vacancy loss. In order to limit that, I sometimes didn't screen as carefully as I should have and ended up with some undesirable situations that I could have avoided by screening more carefully and tolerating a little more vacancy loss. Nothing too crazy though, just some situations that I laugh at now.

All in it's totally worth it. If I have one piece of advice it's buy in the best location you can afford. That will minimize your turnover rate and make it a lot easier to attract quality house mates, plus you'll build equity quicker due to more rapid appreciation which will enable you to tap that equity and build your portfolio quicker.

You won't be able to buy in an already super trendy area with your budget however, so I'd look just outside of those to areas in the "path of progress". Somewhere like Arvada seems to be a good option for what you're looking to do, or Longmont if that's not too far out from Denver for you. There are some places in each of those towns within your budget. It's the best buyers market I've seen here in a long time right now so I'd jump on it! Buyers will be back out in the spring, that's how our market here works every year, year after year.

How Hard is it to Find Tenants?

Most Popular Reply